|
Major Decisions and Initiatives
Finance
The UPA Government completes one year on May 21, 2005. During this period, the Government has taken several important initiatives. Some of these are being brought out in the series ‘Major Decisions and Initiatives’.
Economic Affairs
A Special Purpose Vehicle
A Special Purpose Vehicle (SPV) is proposed to be established to finance viable infrastructure projects in specified sectors including but not limited to roads, ports, airports and tourism. SPV will lend funds, especially debt, of longer-term maturity to the eligible projects of identified sectors to supplement other loans from banks and financial institutions.
Fiscal Responsibility and Budget Management
The Fiscal Responsibility and Budget Management Act, 2003 was passed by Parliament on August 26, 2003 but the date of its enforcement was left to the discretion of the Government. The Act and the Fiscal Responsibility and Budget Management Rules, 2004 under the enabling provisions of the Act were brought into force with effect from July 5, 2004 by the UPA Government.
In the first year of the implementation of the Act, ambitious front-loading of fiscal correction has helped in substantial fiscal consolidation with improvement of about 0.9 per cent of GDP expected in revenue deficit over the level achieved in 2003-04.
Gender Budgeting
The existing gender neutral budget does not make gender specific impact in budgetary policies. In order to translate gender commitments into budgetary commitments, all Ministries/Departments have been asked to establish gender budgeting cell. As suggested by the Expert Group constituted to review the classification system for Government transactions, 18 Ministries/Departments were asked to bring out clearly scheme-wise provisions and physical targets benefiting women in their Annual Report/Performance Budget for 2004-05. Instructions have also been issued to prepare incidence benefit analysis from the next financial year (2005-06) and include the same in their Annual Reports/Performance Budgets.
For the first time, a separate Statement No.19 has been included in the Budget Documents highlighting the gender sensitivities of budgetary allocations made under Demands for Grants.
In addition to the above, Department of Women & Child Development and National Institute of Public Finance & Policy will jointly undertake a review of the public expenditure profile of selected Departments through the gender lens, conduct beneficiary – incidence analysis and recommend specific changes in operational guidelines of various development schemes so as to improve coverage of women beneficiaries of the public expenditures. These Departments are Rural Development, Health, Family Welfare, Labour, Elementary Education, Small Scale Industries, Urban Employment & Poverty Alleviation, Social Justice & Empowerment and Tribal Affairs.
Senior Citizens Savings Scheme
The Government has introduced the ‘Senior Citizens Savings Scheme’ with effect from August 2, 2004. The scheme offers a risk-free avenue of investment with attractive returns to all senior citizens of the country. The main features of the scheme are:
(i) Citizens of 60 years of age and above are eligible to invest.
(ii) Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years (but less than 60 years) are also eligible to invest their retirement benefits.
(iii) Single or joint account (with spouse) can be opened.
(iv) Deposit in multiples of Rs. 1000 subject to a maximum of Rs. 15 lakh is allowed. (Husband & wife BOTH can separately open accounts and invest upto Rs. 15 Lakh each, under the scheme).
(v) The scheme is available through a large network of designated post offices & branches of pubic sector banks throughout the country. The investment is totally risk-free and the deposit carries interest at the rate of 9 per cent per annum, this is higher than the interest rates available on comparable savings instruments in the market.
(vi) Nomination facility is available in both single and joint accounts.
(vii) The deposits are for a period of five years with the facility of premature withdrawal subject to conditions.
Pension Reforms
The New Pension System (NPS) was operationalised from January 1, 2004. The NPS is mandatory for new recruits to Central Government (except to armed forces in the first stage).
On December 24, 2004, the Cabinet approved a proposal to promulgate an Ordinance, providing for establishing a statutory Pension Fund Regulatory and Development Authority (PFRDA), which will undertake promotional, developmental and regulatory functions in respect of pension funds. The Ordinance was promulgated on December 29, 2004. A Bill replacing the Ordinance was introduced on March 21, 2005. It has since been referred by the Speaker of the Lok Sabha to the Standing Committee on Finance.
External Borrowings
A window has been opened to enable qualified NGO in micro finance activities to access external commercial borrowings. Necessary guidelines have been formulated by RBI.
Financial Sector
Banking
Several initiatives were taken aiming at strengthening the banking system and also to reach the benefits of the banking services to all sections of the society, more particularly the unorganized sector and the farming community.
Social Sector
In June 2004, the Government announced an Action Plan for doubling flow of credit to agriculture from the banking system in the next three years. For the year 2004-05, a lending target of Rs.1,05,000 crore was set which amounted to a growth of 30 per cent over the performance in the previous year.
The progress achieved by the banks was periodically monitored. The concerted efforts made by all concerned resulted in a credit flow to agriculture of over Rs.1,15,000 crore exceeding the target by over Rs.10,000 crore. The banks financed 66.32 lakh new farmers during the year against the target of 50 lakh. A total 4.46 lakh new Self Help Groups were credit linked by the banking system against the target of 1.85 lakh. Banks financed 777 agri-clinics during the year.
Education
In line with NCMP, banks were appealed by the Finance Minister to provide educational loans up to Rs.7.5 lakh collateral free to meritorious students to pursue professional education in the country. The educational loan scheme was accordingly modified by the banks. The banks financed 1.7 lakh students during the year 2004-05 involving an expenditure of Rs.3,500 crore.
Infrastructure
The Government has set up Inter-Institutional Group (IIG) to co-ordinate the efforts of various financing agencies and to speed up project implementation. Industry specific IIGs were set up for roads, airports, civil aviation.
Structural changes in the Banking Sector
In line with the commitments under the NCMP, a package of autonomy measures were announced by the Government to give greater operational flexibility to the management of public sector banks to compete effectively in the market. The Reserve Bank of India issued comprehensive guidelines paving a roadmap for operation of foreign banks in India and ownership and governance for private sector banks. Proposal has been mooted to amend Banking Regulation Act aimed at strengthening the regulatory role of RBI.
The Government also proposes to amend Securities Contract (Regulation) Act, 1956 and Reserve Bank of India Act, 1934 to develop market for securities and derivatives. Re-structuring of RRBs has been taken up to enable them to compete effectively in the market and play a crucial role in rural development. Consolidation through merger of RRBs within the State was mooted. Initiatives were taken to restructure and strengthen the co-operative banking set up in the country. Policy measures are adopted to encourage consolidation in the banking industry through mergers and acquisitions.
Changes in the legal framework for recovery of Bank Loans
The Government amended SARFAESI Act, 2002 to remove the anomalies created by the Supreme Court Judgement on Mardia Chemicals case and to prevent defaulters from adopting delaying tactics.
Credit Information Companies (Regulation) Bill 2004 was introduced in the Rajya Sabha in December 2004 to facilitate setting up of Credit Information Companies aimed at improving quality of appraisal and bringing in greater financial discipline among bank borrowers.
Relief to victims of the Tsunami
Life Insurance Corporation of India and four public sector general insurance companies have taken various measures by waiving of certain documents, simplification of claim procedures and necessary wider publicity resulting in quick settlement of claim arising out of the Tsunami. LIC has settled 371 claims for Rs.3.29 crore out of 399 reported with a settlement ratio of 94 per cent within two months of the catastrophe i.e., by February 25, 2005. The four public sector general insurance companies have settled all 1,214 claims (below Rs.50,000/-) and 345 claims out of 865 (above Rs.50,000) amounting to a total of Rs.10.10 crore within two months of the catastrophe i.e., by February 25, 2005.
Revenue
Direct Taxes
For the first time, the rate of growth of direct taxes has been more than 20 per cent in three consecutive years. The net collection of direct taxes for 2004-05 have been provisionally reported at Rs.1,31,454 crore, which is 25.24 per cent higher than the collection for 2003-04. Moreover, the direct tax-GDP ratio has exceeded 4 per cent for the first time since 1970-71. A Task Force on Recovery of Arrears of Direct Taxes was constituted by the Government in August 2004 for evolving and implementing a multi-pronged strategy for effecting recovery from direct tax arrears. Due to the efforts of the Task Force and the special attention to collection of arrears given by the Income Tax Department, an amount of Rs.7,038 crore has been collected out of arrears in 2004-05 as compared to Rs.5,540 crore and Rs.5,470 crore collected in 2003-04 and 2002-03 respectively.
In the interest of the welfare of the personnel of the armed forces, family pension received by widows, children and nominated heirs of members of the armed forces (including paramilitary forces) killed in action was exempted.
Steps to tap unreported income
Provisions were made in the Income-tax Act were introduced with an aim at bringing unreported income within the tax net and checking the flow of black money .
Drawback Rates
The new drawback rates for 2004-05 have been notified in respect of more than 1050 export products. The new rates have been determined on the basis of certain broad parameters including, inter alia, the prevailing prices of inputs, standard input/ output norms (SION) published by DGFT, share of imports in the total consumption of inputs and the applicable rates of duty.
Several changes were also made in respect of various Export Promotion Schemes in the Foreign Trade Policy, 2004-09.
Setting up of a Financial Intelligence Unit
Recognizing that money-laundering is becoming a significant threat to the integrity of the Indian financial system, the Government has set up a Financial Intelligence Unit, India (FIU-IND) with a view to coordinate and strengthen collection and sharing of financial intelligence through an effective national, regional and global network to combat money laundering and related crimes.
Expenditure
Twelfth Finance Commission’s Recommendations
Twelfth Finance Commission recommendations have been accepted by Government resulting in Substantive additional flow of Resources from the Government of India to the States in the next five years. The salient features include Rs. 1,40,000 crore as Grant in aid – an increase of 123 per cent; Central loans of about Rs. 1,29,000 crore to be rescheduled for a fresh term of 20 years at an interest rate of only 7.5 per cent; interest rates of loans to the States have been brought down from 10.5 per cent to 9 per cent effective from April 1, 2004.
Expenditure Management
Guidelines on expenditure management – fiscal prudence and austerity - were issued with a view to curtailing the expenditure as well as to generate revenue from PSEs/Joint Venture Companies. These austerity measures are expected to yield savings of approximately Rs. 2,000 crore per annum.
Disinvestment
Board for Reconstruction of PSEs
The Board for Reconstruction of Public Sector Enterprises has been constituted by the Government to take up the cases of strengthening, modernising, reviving and restructuring of Public Sector Enterprises.
Investment Commission
Investment Commission has been established to make recommendations to the Government both on policies and procedures to facilitate greater FDI flows into India. The Commission would endeavour to secure a certain level of investment every year.
National Investment Fund for Specific Schemes
In pursuance of the announcement in the NCMP and the Budget announcement by the Finance Minister, the Government has decided to constitute a “National Investment Fund” (NIF). The Fund will have a permanent corpus and will be maintained outside the Consolidated Fund of India. It would be professionally managed by Public Sector Financial Institutions to provide sustainable returns to the Government without affecting its corpus.
The returns earned by the Fund will be used for financing specific schemes and the broad investment objective will be investment in social sector projects which promote education, healthcare and employment; and capital investment in selected profitable and revivable Public Sector Enterprises that yield adequate returns, in order to enlarge their capital base to finance expansion/ diversification.
RK:LV
PIB SF-54 (17.5.2005)
|
